What Lessons Can We Take From The Administration’s Refusal to Allow Idaho to Dismantle the ACA Marketplaces?
In early January, Idaho Governor Butch Otter signed an executive order (EO) directing the state’s Department of Insurance (DOI) to “seek creative options” to expand “access” to health insurance coverage for Idahoans. The EO essentially deemed to allow health carriers in the state to offer plans on the health insurance exchanges created by the Affordable Care Act (ACA) “even if not all [ACA] requirements are met.”[1] For many spectators, the most significant aspect about the order was not that it instructed a state agency to ignore federal law, but that it left open the question whether the Centers for Medicare & Medicaid Services (“CMS”), under the direction of Trump Administration appointee Seema Verma, would step in to enforce the ACA. CMS’s response in early March was that it would enforce the ACA’s penalties against carriers that attempted to sell non-compliant plans, which was a rare instance of the Administration defending a law that it has otherwise attempted to eliminate.
The EO, if carried out and adopted by other states, could have dealt a major blow to the ACA’s exchanges by allowing health insurance carriers to ignore the ACA’s marketplace rules, which include, among other things, the requirement that plans accept any enrollee no matter their health status, include coverage for dependent children up to the age of 26, and limited the price variations plans can charge based on certain characteristics.[2] The purpose of these rules was two-fold: they established a floor of coverage everyone could expect, and they sought to stabilize premiums on the exchanges. The Idaho EO primarily affected the latter purpose.
For the exchanges to produce reasonably priced plans, there must be enough healthy individuals with low health care costs to balance out sicker individuals with higher costs. The ACA sought to accomplish this goal by requiring everyone to carry health insurance (i.e., the now repealed individual mandate) and by subsidizing the cost of exchange plans with premium tax credits. The fact that the tax credits phase out at higher incomes, however, can result in healthier individuals, especially those receiving little or no premium assistance, purchasing less expensive but less comprehensive plans outside of the marketplace. The impact of healthier individuals purchasing such plans could leave exchange plans burdened with a risk pool comprising sicker and costlier individuals, which could cause premiums to rise. By applying minimum standards to plans in the individual and small group market on and off the exchanges, the marketplace rules were designed to limit the ability of health insurance carriers to “cream-skim” these healthier enrollees and cause premiums to rise for exchange plans.
Reckoning with the impact of Idaho’s EO, if implemented, on the marketplaces was more comprehensible than determining whether the Administration was willing to go as far as not enforcing the ACA in order to dismantle the law. Broadly, there are three ways an Administration can dismantle a law or program that it dislikes: 1) legislation, 2) the use of rulemaking and other administrative authority, and 3) controversially, executive discretion to not enforce a law or properly administer a program. The Administration has attempted to utilize all three methods. Legislatively, the Administration unsuccessfully tried to repeal the ACA multiple times in 2017. The Administration has had more success relying on rulemaking to loosen the ACA’s Medicaid components through the use of the pre-existing 1115 waiver process, which gives CMS the authority to approve state Medicaid “demonstrations” that do not comply with federal Medicaid requirements.[3] (ML Strategies has drafted an excellent summary of pending 1115 Waivers). However, the 1115 waiver process has natural limits and is specific to Medicaid. The extent to which CMS will permits states to supplant the ACA will not become clear until more 1332 State Innovation Waivers, which allow states more flexibility from ACA federal requirements, are approved.
The Administration has also taken actions that fall somewhere between the exercise of administrative authority and intentional non-administration. Early on during the Trump Administration, HHS slashed grants to groups providing ACA outreach and enrollment assistance, reduced the open enrollment period for the exchanges, and cut most of the ACA’s advertising budget. In October 2017, President Trump also signed an executive order instructing federal agencies to loosen restrictions on the availability alternative health insurance arrangements—including association health plans, short term limited duration insurance, and health reimbursement arrangements—which would essentially undermine exchange plans in the same ways explained above by providing alternative coverage for healthier individuals. Around the same time, the President reportedly called Administrator Verma to ask her to deny a 1332 state innovation waiver submitted by Iowa, which was designed to stabilize its marketplace. While all these actions were intentional attempts to undermine the ACA, none are equivalent to simply allowing states to ignore federal law like Idaho’s EO would have done.
CMS’s decision to enforce the ACA provides some insight into how the Administration will enforce the ACA. The decision also supplies evidence that Administrator Verma has autonomy at CMS.[4] Going forward, it will be interesting to see how Administrator Verma uses that autonomy, especially during the 1332 waiver process. On March 27, it was reported that CMS is revising guidance on 1332 waivers, and is asking states contemplating “broad changes” to contact CMS. It will also be interesting to see how long such autonomy will last.
[1] The EO contained the small caveat that only carriers that also offered a compliant plan on the exchange could take advantage of this flexibility.
[2] These price variation standards, known as community rating, included age, tobacco use, geographic location, and family size.
[3] For example, CMS has allowed state Medicaid programs to charge cost-sharing to Medicaid enrollees or implementing work requirements.
[4] Administrator Verma has a long-standing relationship with Vice-President Mike Pence and enjoyed the praise of the Republican legislators during the ACA repeal process for her advisory role.
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